AmTech Has Great Expectations for Akamai, Limelight

American Technology Research analyst Rob Sanderson Wednesday started coverage of both Akamai (NASDAQ:AKAM) and its chief rival in the content delivery network segment, Limelight Networks (NASDAQ:LLNW), with Buy ratings.

Sanderson notes that, while Akamai is up sharply since Friday, the stock remains well below its 52-week high of $59.69; in fact, the stock is down about 30% for the year to date. This is despite the fact that it has not missed or guided down earnings. Sanderson says the stock has been troubled by “fears of intense competition,” as well as soft gross margin guidance.

Sanderson said he would buy the stock ahead of earnings, which are due on October 24. “We think fundamentals are not as bad as feared and expect guidance will be in-line or better than current consensus,” a combination he thinks can provide a catalyst for the stock.

Sanderson does say that “there is evidence of aggressive price reductions for customers moving large quantities of data,” and adds that larger file sizes will continue to pressure the company’s unit economics and gross margins.

Sanderson also makes an odd connection, asserting that the company’s shares may have gotten a boost from the announcement that SAP (NYSE:SAP) is going to buy Business Objects (BOBJ). That seems silly on the surface, since the companies are in entirely different businesses, but Sanderson says that the deal “is a reminder that M&A is alive,” and he notes that AKAM shares at their worst levels had been cut in half.

Meanwhile, Sanderson says Limelight shares at least for the near-term will trade based on how investors feel about Akamai. He notes that the company had a disappointing first quarter as a public company, which hurt the stock and damaged management’s credibility with the Street. He thinks a solid third quarter could carry the stock back to its $15 IPO price.